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Revisiting the Monetary Transmission Mechanism through an Industry-Level Differential Approach 

Author

Listed:
  • Sangyup Choi
  • Tim Willems
  • Seung Yong Yoo

Abstract

Combining industry-level data on output and prices with novel monetary policy shock estimates for 102 countries, we analyze how the effects of monetary policy vary with industry characteristics. Next to being interesting in their own right, our findings are informative on the importance of various transmission mechanisms, as they are thought to vary systematically with the included characteristics. Results suggest that monetary policy has greater output effects in industries featuring assets that are more difficult to collateralize or consisting of smaller firms, consistent with the credit channel, followed by industries producing durables, as predicted by the interest rate channel. The credit channel is stronger during bad times as well as in countries with lower levels of financial development, in line with financial accelerator logic. We do not find support for the cost channel of monetary policy, and only limited support for a channel running via exports. Our database (containing monetary policy shock estimates for 176 countries) may be of independent interest to researchers.

Suggested Citation

  • Sangyup Choi & Tim Willems & Seung Yong Yoo, 2023. "Revisiting the Monetary Transmission Mechanism through an Industry-Level Differential Approach ," CAMA Working Papers 2023-64, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2023-64
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2023-12/64_2023_choi_willems_yoo.pdf
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    More about this item

    Keywords

    monetary policy transmission; industry growth; financial frictions; heterogeneity in transmission; monetary policy shocks;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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